Friday, October 16, 2009

Declaratory Judgment and Order of Restitution of No-Fault Payments Granted Based on Annulment of PC's Certificate of Incorporation

Allstate Ins. Co. v. Plainview Professional Med., P.C.
(Sup Ct., Nassau Co., decided 9/24/2009)

Three Allstate companies brought this action against Plainview Professional Medical, P.C., Bruce Bromberg, D.C., Rafael Garcia, M.D., PPP Healthcare Management, Inc., and Handon Management, Ltd.: (1) for a declaration that the Allstate plaintiffs were under no obligation to pay pending, previously denied or future no-fault claims submitted to them by defendants since Plainview Professional Medical PC's certificate of incorporation was annulled by order of the New York State Department of Health, State Board for Professional Medical Conduct on or about October 6, 2008; and (2) to recoup payments made to defendants pursuant to New York State s no-fault law from April 4, 2002 through and including July 18, 2006, predicated on causes of action sounding in fraud and unjust enrichment/restitution.

Plaintiffs moved for summary judgment, contending that, as a consequence of their failure to comply with the state licensing requirements of § 1503(a) of the Business Corporation Law, defendants were not eligible to receive in excess of $600,000 in no-fault payments paid to them by the Allstate plaintiffs.  Specifically, Allstate argued that Plainview was formed in violation of Business Corporation Law § 1503 in that Rafael Garcia was not, in fact, Plainview's true owner and Plainview's certificate of incorporation was annulled by the New York State Department of Health, State Board for Professional Medical Conduct on or about October 6, 2008 after an evidentiary hearing at which neither Rafael Garcia nor Plainview appeared to contest the charges. The Hearing Committee found that unqualified individuals were instrumental in operating, controlling and/or handling Plainview's financial and operational affairs, to wit: according to the Findings of Fact contained in the Determination and Order of the Hearing Committee, Plainview "evaded the legal restrictions on incorporation, ownership and/or control of (Professional Corporations) by concealing * * * that legally unqualified individuals incorporated, owned, operated and controlled medical service corporations . While Rafael Garcia, M.D. was listed on Plainview's certificate of incorporation, filed with the Secretary of State on March 8 , 2000 as Plainview's sole shareholder, director and officer, he did not operate or control Plainview from its inception through the present. Although he apparently did not practice medicine at Plainview since in or about the summer of2000, he was compensated for the use of his name.

Allstate also asserted that once he surrendered his medical license, effective February 6, 2008, pursuant to Public Health Law § 230.12, defendant Rafael Garcia was no longer authorized to practice medicine, a further violation of §§ 1503(a) and (b) and 1504(a) of the Business Corporation Law.

The Hearing Committee noted in its decision that while surrender of Dr. Garcia's license was the appropriate penalty for a physician who abdicates his responsibility by allowing unqualified individuals to use his name to run a medical professional corporation, the appropriate penalty for a corporation which fails to comply with state laws regarding the practice of medicine is annulment of its certificate of incorporation.

With respect to the annulment of Plainview's certificate of incorporation, authorized pursuant to § 1503(f) of the Business Corporation Law and § 230(a)(5) of the Public Health Law, and those of three other such medical service corporations purportedly owned by Rafael Garcia but otherwise unrelated to this matter, the order state[d] that
the Hearing Committee believes that annulment goes beyond revocation in that the corporations will be treated as if it (sic) never validly existed from day one and * * * will be unable to
collect on any accounts receivable.
In opposition to the Allstate plaintiffs' motion, defendant chiropractor Bromberg, who purported to be Plainview's manager, argued that: (1) Rafael Garcia was the owner of the defendant corporation and the practicing medical doctor at the practice; (2) only fully credentialed, licensed medical professionals were employed by the practice; and (3) the Department of Health decision on which plaintiff insurers were relying could not be used against him or his management company, Handon Management Ltd., because neither party had had an opportunity to participate in the proceeding before the State Board of Professional Medical Conduct Hearing Committee.

In granting the plaintiffs' motion with respect to Plainview and Garcia, Nassau County Supreme Court Justice Stephen Bucaria held:
Under the Court of Appeals' holding in State Farm v Mallella, supra at 319, where as here, a professional service corporation such as Plainview was established under the facially valid cover of a nominal physician owner i.e., defendant Rafael Garcia, but was, in fact, actually operated by a non-physician in violation of Business Corporation Law §§ 1507 and 1508 and Education Law § 6507(4)(c), insurance carriers may properly withhold payment to such an enterprise for medical services provided to patients covered by no-fault insurance.

Given the Hearing Committee's finding that Plainview's authority to render professional services was obtained through fraudulent means-and given that only corporations that are in full compliance with applicable statutory and regulatory authority are entitled to reimbursement (Education Law § 6507(4)(c); Business Corporation Law §1503(d), defendant Plainview was/is ineligible to receive reimbursement for no- fault claims at issue herein. While nominally owned by Rafael Garcia, Plainview was, according to the Hearing Committee, actually operated by a non-physician in violation of New York's applicable licensing statutes.
In declining to apply the Hearing Committee's Determination and Order collaterally against Bromberg and Handon Management to estop them from contesting plaintiffs' claims, Justice Bacaria ruled:
Herein, collateral estoppel may not be used by plaintiffs to preclude Bruce Bromberg from litigating the question of whether he was the true owner/controller of Plain view; neither Bruce Bromberg nor Handon Management Ltd. was a part to the administrative proceeding.  Neither, therefore, had an opportunity to present evidence at the hearing or to cross examine witnesses on the crucial ownership/control issue. A contrary holding would contravene the concept of fairness underlying the doctrine. While the Hearing Committee found that the unqualified individual(s) owned, operated/controlled/andled the financial affairs of defendant Plainview, it made no finding vis-à-vis defendant Bruce Bromberg's ownership and/or control of said corporate defendant. Fairness dictates that this issue be resolved by the finder of fact in this litigation.
The court concluded: 
Accordingly, plaintiffs' motion for summary judgment against defendants Plainview and Rafael Garcia as to payments made to Plainview from April, 2002 to the present is granted and it is hereby declared that plaintiffs have no obligation to pay any pending previously denied or future claims submitted to said insurers by Plainview for service provided during that time period.

Pursuant to such finding, plaintiffs are granted summary judgment against defendants Plainview and Rafael Garcia on their second cause of action for unjust enrichment/restitution in an amount to be determined at trial at which, inter alia, Bruce Bromberg's ownership interest in, and control of, Plainview, and that of his management company, Handon Management Ltd., shall be determined and their liability in damages as and for the claims asserted by plaintiffs herein assessed.
The three other medical service corporations (PCs) that had their certificates of incorporation annulled along with Plainview were:
  • Open Medical Diagnostics of Islip, P.C.
  • Island Medical Professional, P.C. and
  • Willis Avenue Medical, P.C.
The OPMC's Determination and Order dated October 6, 2008 with respect to all four PCs is here.

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